Expert Insights

The Importance and Benefits of Offering Employer Match Some employees resist saving because they feel retirement is too far away, can’t afford it, or can’t grasp the benefit. You can help change that mentality by offering a 401(k) employer match. Beyond being an attractive employee benefit, a 401(k) plan can act as a catalyst for employees at all career stages to save for retirement. Some employees, however, will resist saving because they feel retirement is too far away, or can’t afford it, or can’t make room in their budget (and current spending levels). However, as a 401(k) plan sponsor, you can help change that mentality by offering a 401(k) employer matching contribution. What is a 401(k) employer matching contribution? With an employer match, a portion or all of an employee’s 401(k) plan contribution will be “matched” by the employer. Common matching formulas include: Dollar-for-Dollar Match: Carla works for ABC Company, which runs payroll on a semi-monthly basis (two times a month = 24 pay periods a year). Her gross pay every period is $2,000. She has decided to defer 4% of her pre-tax pay every pay period, or $80 (4% x $2,000). The ABC Company 401(k) plan generously offers a dollar-for-dollar match up to 4% of compensation deferred. With each payroll, $80 of Carla’s pay goes to her 401(k) account on a pre-tax basis, and ABC Company also makes an $80 matching contribution to Carla’s 401(k) account. At a 4% contribution rate, Carla is maximizing the employer contribution amount. If she reduces her contribution to 3%, her company matching contribution would also drop to 3%; but if she increases her contribution to 6%, the formula dictates that her employer would only contribute 4%. Partial Match (simple): Let’s take the same scenario as above, but ABC Company 401(k) plan matches 50% on the first 6% of compensation deferred. This means that it will match half of the 401(k) contributions. If Carla contributes $80 to the 401(k) plan, ABC Company will contribute $40 on top of her contribution as the match. Tiered Match: By applying different percentages to multiple tiers, employers can encourage employees to contribute to the plan while controlling their costs. For example, ABC Company could match 100% of deferrals up to 3% of compensation and 50% on the next 3% of deferrals. Carla contributes 4% of her pay of $2,000, which is $80 per pay period. Based on their formula, ABC Company will match her dollar-for-dollar on 3% of her contribution ($60 = 3% x $2,000), and 50 cents on the dollar on the last 1% of her contribution for a total matching contribution of $70 or 3.5%. The plan’s matching formula is chosen by the company and specified in the plan document or may be defined as discretionary, in which case the employer may determine not only whether or not to make a matching contribution in any given year, but also what formula to use. Is there a limit to how much an employer can match? The IRS limits annual 401(k) contributions, and these limits change from year to year. It’s also important to note that the IRS caps annual compensation that’s eligible to be matched. Potential Benefits of Providing an Employer Match Attract talent: Offering a 401(k) is a great way to set your company apart from the competition, and a matching contribution sweetens the deal! A Betterment at Work study found that 68 percent of respondents would prioritize having better financial wellness benefits above an extra week of vacation! Better 401(k) plan participation: Unlike other types of employer contributions, a matching contribution requires employees to contribute their own money to the plan. In other words, the existence of the match drives plan participation up (not contributing is like leaving money on the table), encouraging employee engagement and increasing the likelihood of having your plan pass certain compliance tests. Financial well-being of employees: A matching contribution shows employees that you care about their financial well-being and are willing to make an investment in their future. The additional funds can help employees reach their retirement savings goal. Improved retention: The match is essentially “free money” that can be considered part of an employee’s compensation, which can be hard to give up. And by applying a vesting schedule to the employer match, you can incentivize employees to stay longer with your company to gain the full benefits of the 401(k) plan. Employer tax deduction: matching contributions are tax deductible, which means you can   deduct them from your company’s income so long as they don’t exceed IRS limits.  Offering a 401(k) plan is already a huge step forward in helping your employees save for their retirement. Providing a 401(k) matching contribution enhances that benefit for both your employees and your organization. Ready for a better 401(k) solution? Whether you’re considering a matching contribution or not, Betterment is here to help. We offer an all-in-one dashboard that seeks to simplify plan administration, at one of the lowest costs in the industry.,  Our dedicated onboarding team, and support staff are here to help you along the way. Any links provided to other websites are offered as a matter of convenience and are not intended to imply that Betterment or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.  

Helping Employees Set Up a Financial Safety Net Employers are looking for ways to help their employees save for unexpected financial emergencies. Betterment’s 401(k) platform can help. Your water heater fails. Your car breaks down on the side of the road. Your spouse loses their job because of a global pandemic. Life is filled with challenges, and some are more stressful and expensive than others. As a business owner, you’ve likely witnessed firsthand how financial emergencies can impact your employees. Not only does the stress affect employees’ personal lives, it can also affect their work performance, attendance, and focus. That’s why an emergency fund —with enough money to cover at least a few months of expenses—is such an important part of your employees’ overall financial plan. However, many people lack this critical safety net. Rainy day funds are running dry According to research by the Federal Reserve and reported on by the Employee Benefit Research Institute (EBRI), less than 25% of working families had liquid savings of more than three months of their family income. And even when asked if they have 75% of funds needed for three months, that jumps to just over one quarter. When faced with an emergency, employees without a financial safety net may turn to credit cards, take a payday loan, or even raid their retirement savings—triggering early withdrawal penalties and derailing their retirement savings progress. Having a solid emergency fund may help prevent employees from spiraling into a difficult financial predicament with wide-reaching implications. Emergency fund 101 So, what should your employees consider when setting up an emergency fund? At Betterment, we recommend: Saving at least three to four months of expenses—If employees have a financial safety net, they’ll feel more confident focusing on other important goals like retirement or home ownership.  Investing emergency fund money—By investing their money—not socking it away in a low-interest savings account—employees don’t run the risk of losing buying power over time because of inflation.  Making it automatic—Setting up a regular, automatic deposit can help employees stick to their savings plan because it reduces the effort required to set aside money in the first place. All of this is summarized for employees here: How to Build an Emergency Fund. Helping employees save for today—and someday Some employees may feel like they have to choose between building their emergency fund and saving in their workplace retirement plan. But it doesn’t have to be a choice. With the right 401(k) plan provider, your employees can save for retirement and build an emergency fund at the same time. For example, the Betterment platform is more than just a 401(k) in that it provides: Quick and easy emergency saving fund set-up Betterment makes it easy to establish an emergency savings fund—helping ensure employees don’t need to dip into their 401(k) when faced with unexpected financial difficulties. If your employees aren’t sure how much to save, Betterment can calculate it for them using their gross income, zip code, and research from the American Economic Association and the National Bureau of Economic Research.Betterment will also estimate how much employees need to save to build the emergency fund they want to reach their target amount in their desired time horizon. Using our goals forecaster, employees can model how much they need to save each month to reach their emergency fund goal and view different what-if scenarios that take into account monthly savings, time horizons, and target amounts. Linked accounts for big picture planning Our easy-to-use online platform links employee savings accounts, outside investments, IRAs—even spousal/partner assets—to create a real-time snapshot of their finances, making it easy for them to see the big picture. That means that in a single, holistic view, employees can track both their 401(k) plan account and their emergency fund. Personalized advice to help employees save for today (and someday) By offering personalized advice, Betterment can help your employees make strides toward their long- and short-term financial goals. Ready for a better way to help your employees prepare for the inevitable—and the unexpected? Talk to Betterment today.

Understanding 401(k) Nondiscrimination Testing Discover what nondiscrimination testing is (and how to pass). If your company has a 401(k) plan—or if you’re considering starting one in the future—you’ve probably heard about nondiscrimination testing. But what is it really? And how do you help your plan pass these important compliance tests? Read on for answers to the most frequently asked questions about nondiscrimination testing. What is nondiscrimination testing? Mandated by ERISA, annual nondiscrimination tests help ensure that 401(k) plans benefit all employees—not just business owners or highly compensated employees (HCEs). Because the government provides significant tax benefits through 401(k) plans, it wants to ensure that these perks don’t disproportionately favor high earners. We’ll dive deeper into nondiscrimination testing, but let’s first discuss an important component of 401(k) compliance: contribution limits. What contribution limits do I need to know about? Because of the tax advantages afforded 401(k) plan contributions, the IRS puts a limit on the amount that employers and employees can contribute. Here’s a quick overview of the important limits: Limit What is it? Notes for 2022 plan year Employee contribution limits (“402g”) Limits the amount a participant may contribute to the 401(k) plan. The personal limit is based on the calendar year.1 Note that traditional (pre-tax) and Roth (post-tax) contributions are added together (there aren’t separate limits for each). $20,500 is the maximum amount participants may contribute to their 401(k) plan for 2022. Participants age 50 or older during the year may defer an additional $6,500 in “catch-up” contributions if permitted by the plan. Total contribution limit (“415”) Limits the total contributions allocated to an eligible participant for the year. This includes employee contributions, all employer contributions and forfeiture allocations. Total employee and employer contributions cannot exceed total employee compensation for the year. $61,0002 plus up to $6,500 in catch-up contributions (if permitted by the plan) for 2022. Cannot exceed total compensation. Employer contribution limit   Employers’ total contributions (excluding employee deferrals) may not exceed 25% of eligible compensation for the plan year. N/A   This limit is an IRS imposed limit based on the calendar year. Plans that use a ‘plan year’ not ending December 31st base their allocation limit on the year in which the plan year ends. This is different from the compensation limits, which are based on the start of the plan year. Adjusted annually; see most recent Cost of Living Adjustments table here. What is nondiscrimination testing designed to achieve? Essentially, nondiscrimination testing has three main goals:   To measure employee retirement plan participation levels to ensure that the plan isn’t “discriminating” against lower-income employees (NHCEs) or favoring HCEs.   To ensure that people of all income levels have equal access to—and awareness of—the company’s retirement plan.   To encourage employers to be good stewards of their employees’ futures by making any necessary adjustments to level the playing field (such as matching employees’ contributions) How do I classify my employees by income level? And what do all these acronyms really mean? Before you embark on nondiscrimination testing, you’ll need to categorize your employees by income level and employee status. Here are the main categories (and acronyms): Highly compensated employee (HCE)—According to the IRS, an employee who meets one or more of the following criteria: Prior (lookback) year compensation—For plan years ending in 2022, earned over $135,000 in the preceding plan year; some plans may limit this to the top 20% of earners (known as the top-paid group election); or Ownership in current or prior year—Owns more than 5% of (1) outstanding corporate stock, (2) voting power across corporate stock, or (3) capital or profits of an entity not considered a corporation Non-highly compensated employee (NHCE)—Someone who does not meet the above criteria. Key employee—According to the IRS, an employee who meets one or more of the following criteria during the plan year: Ownership over 5%—Owns more than 5% of (1) outstanding corporate stock, (2) voting power across corporate stock, or (3) capital or profits of an entity not considered a corporation. Ownership over 1%—Owns more than 1% of the stock, voting power, capital, or profits, and earned more than $150,000. Officer—An officer of the employer who earned more than $185,000 for 2022; this may be limited to the lesser of 50 officers or the greater of 3 or 10% of the employee count. Non-key employee—Someone who does not meet the above criteria. What are the nondiscrimination tests that need to be performed? Below are the tests typically performed for 401(k) plans.  Betterment will perform each of these tests on behalf of your plan and inform you of the results. 1. 410(b) Coverage Tests—These tests determine the ratios of employees eligible for and benefitting from the plan to show that the plan fairly covers your employee base. Specifically, these tests review the ratio of HCEs benefitting from the plan against the ratio of NHCEs benefitting from the plan. Typically, the NHCE percentage benefitting must be at least 70% or 0.7 times the percentage of HCEs considered benefitting for the year, or further testing is required. These annual tests are performed across different contribution types: employee contributions, employer matching contributions, after-tax contributions, and non-elective (employer, non-matching) contributions. 2. Actual deferral percentage (ADP) test—Compares the average salary deferral of HCEs to that of non-highly compensated employees (NHCEs). This test includes pre-tax and Roth deferrals, but not catch-up contributions. Essentially, it measures the level of engagement of HCEs vs. NHCEs to make sure that high income earners aren’t saving at a significantly higher rate than the rest of the employee base. Specifically, two percentages are calculated: HCE ADP—The average deferral rate (ADR) for each HCE is calculated by dividing the employee’s elective deferrals by their salary. The HCE ADP is calculated by averaging the ADR for all eligible HCEs (even those who chose not to defer). NHCE ADP—The average deferral rate (ADR) for each NHCE is calculated by dividing the employee’s elective deferrals by their salary. The NHCE ADP is calculated by averaging the ADR for all eligible NHCEs (even those who chose not to defer). The following table shows how the IRS limits the disparity between HCE and NHCE average contribution rates. For example, if the NHCEs contributed 3%, the HCEs can only defer 5% (or less) on average. NHCE ADP   HCE ADP 2% or less → NHCE% x 2 2-8% → NHCE% + 2 more than 8% → NHCE% x 1.25   3. Actual contribution percentage (ACP) test—Compares the average employer contributions received by HCEs and NHCEs. (So this test is only required if you make employer contributions.) Conveniently, the calculations and breakdowns are the same as with the ADP test, but the average contribution rate calculation includes both employer matching contributions and after-tax contributions. 4. Top-heavy determination—Evaluates whether or not the total value of the plan accounts of “key employees” is more than 60% of the value of all plan assets. Simply put, it analyzes the accrued benefits between two groups: Key employees and non-Key employees. A plan is considered top-heavy when the total value (account balance with adjustments related to rollovers, terminated accounts, and a five-year lookback of distributions) of the Key employees’ plan accounts is greater than 60% of the total value (also adjusted as noted above) of the plan assets, as of the end of the prior plan year. (Exception: The first plan year is determined based on the last day of that year). If the plan is considered top-heavy for the year, employers must make a contribution to non-key employees. The top-heavy minimum contribution is the lesser of 3% of compensation or the highest percentage contributed for key employees. However, this can be reduced or avoided if no key employee makes or receives contributions for the year (including forfeiture allocations). What happens if my plan fails? If your plan fails the ADP and ACP tests, you’ll need to fix the imbalance by returning 401(k) plan contributions to your HCEs or by making additional employer contributions to your NHCEs. If you have to refund contributions, affected employees may fall behind on their retirement savings—and that money may be subject to state and federal taxes! If you don’t correct the issue in a timely manner, there could also be a 10% penalty fee and other serious ramifications. Why is it hard for 401(k) plans to pass nondiscrimination testing? It’s actually easier for large companies to pass the tests because they have many employees at varying income levels contributing to the plan. However, small and mid-sizes businesses may struggle to pass if they have a relatively high number of HCEs. If HCEs contribute a lot to the plan, but non-highly compensated employees (NHCEs) don’t, there’s a chance that the 401(k) plan will not pass nondiscrimination testing. How can I help my plan pass the tests? It pays to prepare for nondiscrimination testing. Here are a few tips that can make a difference: Make it easy to enroll in your plan—Is your 401(k) plan enrollment process confusing and cumbersome? If so, it might be stopping employees from enrolling. Consider partnering with a tech-savvy provider like Betterment that can help your employees enroll quickly and easily—and support them on every step of their retirement saving journey. Learn more now. Encourage your employees to save—Whether you send emails or host employee meetings, it’s important to get the word out about saving for retirement through the plan. That’s because the more NHCEs that participate, the better chance you have of passing the nondiscrimination tests. (Plus, you’re helping your staff prioritize their future.) Add automatic enrollment —By adding an auto-enrollment feature to your 401(k) plan, you can automatically deduct elective deferrals from your employees’ wages unless they elect not to contribute. It’s a simple way to boost participation rates and help your employees start saving. Add automatic escalation - By adding automatic escalation, you can ensure that participants who are automatically enrolled in the plan continue to increase their deferral rate by 1% annually until a cap is reached (generally 15%). It’s a great way to increase your employees retirement savings and to engage them in the plan. Add a safe harbor provision to your 401(k) plan—Avoid these time-consuming, headache-inducing compliance tests all together by electing a safe harbor 401(k) plan. What’s a safe harbor 401(k) plan? A safe harbor 401(k) plan is a defined contribution retirement plan that’s exempt from nondiscrimination testing. It’s like a typical 401(k) plan except it requires you to contribute to the plan on behalf of your employees, sometimes as an incentive for them to save in the plan. This mandatory employer contribution must vest immediately—rather than on a graded or cliff vesting schedule. This means your employees can take these contributions with them when they leave, no matter how long they’ve worked for the company. To fulfill safe harbor plan requirements, you can elect one of the following contribution formulas: Basic safe harbor match—Employer matches 100% of employee contributions, up to 3% of their compensation, plus 50% of the next 2% of their compensation. Enhanced safe harbor match—Must be as generous as the basic safe harbor match, a common formula is when the employer matches 100% of employee contributions, up to 4% of their compensation. Non-elective contribution—Employer contributes a minimum of 3% of each employee’s compensation, regardless of whether they make their own contributions. These are only the minimum contributions. You can always increase non-elective or matching contributions to help your employees on the road to retirement. Interested in adding a safe harbor provision to your 401(k) plan? Find out more now. Did You Know? As a result of the SECURE Act, any 401(k) plan not utilizing a safe harbor match can be amended as late as 30 days before a plan year-end to provide the 3% safe harbor nonelective contribution for the plan year. Alternatively, the plan may amend up until the last day of the following plan year, provided they do a 4% safe harbor nonelective contribution. How can Betterment help? We know that nondiscrimination testing and many other aspects of 401(k) plan administration can be complicated. That’s why we do everything in our power to help make it easier for you as a plan sponsor. In fact, we help with year-end compliance testing, including ADP/ACP testing, top-heavy testing, annual additions testing, deferral limit testing, and coverage testing. With our intuitive online platform, you can better manage your plan and get the support you need along the way. Plus, you can have it all for a fraction of the cost of other 401(k) providers. Ready to learn more? Let's talk.  Any links provided to other websites are offered as a matter of convenience and are not intended to imply that Betterment or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise. The information contained in this article is meant to be informational only and does not constitute investment or tax advice.

What Employers Should Know About Timing of 401(k) Contributions One of the most important aspects of plan administration is making sure money is deposited in a timely manner—to ensure that employer contributions are tax-deductible and employee contributions are in compliance. Timing of employee 401(k) contributions (including loan repayments) When must employee contributions and loan repayments be withheld from payroll? This is a top audit issue for 401(k) plans, and requires a consistent approach by all team members handling payroll submission. If a plan is considered a ‘small plan filer’ (typically under 100 eligible employees), the Department of Labor is more lenient and provides a 7-business day ‘safe harbor’ allowing employee contributions and loan repayments to be submitted within 7 business days of the pay date for which they were deducted. If a plan is larger (>100 eligible employees), the safe harbor does not apply, and the timeliness is based on the earliest date a plan sponsor can reasonably segregate employee contributions from company assets. Historically, plans leaned on the outer bounds of the requirement (by the 15th business day of the month following the date of the deduction effective date), but today with online submissions and funding via ACH, a company would generally be hard-pressed to show that any deposit beyond a few days is considered reasonable. To ensure timely deposits, it’s imperative for plan sponsors to review their internal processes regularly. All relevant team members -- including those who may have to handle the process infrequently due to vacations or otherwise -- understand the 401(k) deposit process completely and have the necessary access. I am a self-employed business owner with income determined after year-end. When must my 401(k) contributions be submitted to be considered timely? If an owner or partner of a company does not receive a W-2 from the business, and determines their self-employment income after year-end, their 401(k) contribution should be made as soon as possible after their net income is determined, but certainly no later than the individual tax filing deadline. Their 401(k) election should be made (electronically or in writing) by the end of the year reflecting a percentage of their net income from self employment. Note that if they elect to make a flat dollar 401(k) contribution, and their net income is expected to exceed that amount, the deposit is due no later than the end of the year. Timing of employer 401(k) contributions We calculate and fund our match / safe harbor contributions every pay period. How quickly must those be deposited? Generally, there’s no timing requirement throughout the year for employer matching or safe harbor contributions. The employer may choose to pre-fund these amounts every pay period, enabling employees to see the value provided throughout the year and to benefit from compound interest. Note that plans that opt to allocate safe harbor matching contributions every pay period are required to fund this at least quarterly. When do we have to deposit employer contributions for year-end (e.g., true-up match or safe harbor deposits, employer profit sharing)? Employer contributions for the year are due in full by the company tax filing deadline, including any applicable extension. Safe harbor contributions have a mandatory funding deadline of 12 months after the end of the plan year for which they are due; typically for deductibility purposes, they are deposited even sooner.

Pros and Cons of Illinois Secure Choice for Small Businesses Answers to frequently asked questions about the Illinois Secure Choice retirement program for small businesses. Since it was launched in 2018, the Illinois Secure Choice retirement program has helped thousands of people in Illinois save for their future. If you’re an employer in Illinois, state laws require you to offer Illinois Secure Choice if you: Have 5 or more employees during all four quarters of the previous calendar year Have been in operation for at least two years Do not offer an employer-sponsored retirement plan If your company has recently become eligible for Illinois Secure Choice or you’re wondering whether it’s the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees Illinois Secure Choice? No. Illinois laws require businesses with 5 or more employees to offer retirement benefits, but you don’t have to elect Illinois Secure Choice. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is Illinois Secure Choice? Illinois Secure Choice is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, you must automatically enroll your employees in the program. Specifically, the Illinois plan requires employers to automatically enroll employees at a 5% deferral rate, and contributions are invested in a Roth IRA. As an eligible employer, you must set up the payroll deduction process and remit participating employee contributions to the Secure Choice plan provider. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider Illinois Secure Choice? Illinois Secure Choice is a simple, straightforward way to help your employees save for retirement. It’s administered by a private-sector financial services firm and sponsored by the State of Illinois. As an employer, your role is limited and there are no fees to offer Illinois Secure Choice. 4. Are there any downsides to Illinois Secure Choice? Yes, there are factors that may make Illinois Secure Choice less appealing than other retirement plans like 401(k) plans. Here are some important considerations: Illinois Secure Choice is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in Illinois Secure Choice. For example, single filers with modified adjusted gross incomes of more than $144,000 in 2022 would not be eligible to contribute. However, 401(k) plans aren’t subject to the same income restrictions. Illinois Secure Choice is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—Illinois Secure Choice only allows after-tax (Roth) contributions. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to Illinois Secure Choice, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, Illinois Secure Choice does not. Limited investment options—Illinois Secure Choice offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer Illinois Secure Choice; however, employees do pay approximately $0.75 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have lower employee fees. Fees are a big consideration because they can erode employee savings over time.  5. Why should I consider a 401(k) plan instead of Illinois Secure Choice? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. It’s important to note that the proposed SECURE Act 2.0 may offer even more tax credits. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also likely have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contribution limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with Illinois Secure Choice, that means more employee savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that Illinois Secure Choice is most appropriate for your company, visit the website to register. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running—and aim to simplify ongoing plan administration. Plus, our fees one of the lowest in the industry. That can mean more value for your company—and more savings for your employees. Get started now. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only. 

How to Help Your Employees Deal with Financial Stress Employee financial concerns can have a major impact on your business. Learn what you can do to help ease employee financial stress. Financial stress has been felt by Americans since the birth of the country. The nature of that stress has obviously evolved and the COVID pandemic exacerbated many problems. Between juggling childcare responsibilities, student loans, medical expenses, across-the-board inflation – it’s no secret that employees are facing added pressure. And asking them to leave those stressors at the door when they start their workday may not be a realistic expectation. Consider this: Data from an American Psychological Association survey shows that in February 2022, 65% of Americans were stressed about money and the economy – the highest percentage recorded since 2015. Another recent survey found that 61% of Americans were living paycheck to paycheck, as of June 2022. And the biggest rise in paycheck-to-paycheck consumers were those earning between $100,000 and $150,000. One in 3 Americans said they’re either struggling or in a crisis with their personal finances, and over half said they had difficulty paying their bills, according to a report from Ramsey Solutions, The State Of Personal Finance In America 2022. Fifty-nine percent of Americans said they worry about their general finances daily, and about half have lost sleep in the last three months due to financial worries. What can you do to help ease employee financial stress? You don’t need a big, expensive financial wellness program to help your employees. To begin, think about financial wellness benefits resources you already have at your disposal:  Does your health insurance plan have an Employee Assistance Program (EAP)? In addition to helping employees navigate health care issues, EAPs frequently offer advice on budgeting, debt consolidation, retirement savings planning, and more.  Do you have an in-house expert? Enlist your CFO or another financially savvy manager, CFO, or HR professional, to share savings tips or lead an information session to address common financial issues. answer commonly asked financial questions. Do you offer a 401(k) plan? If so, your 401(k) provider likely offers a variety of educational tools and resources to help employees budget and save for retirement (and beyond). By leveraging these resources, and educating your employees about the benefits they are already receiving, you can begin the process of improving employee financial wellbeing. Betterment can help At Betterment, our mission is simple: to empower people to do what’s best for their money so they can live better. By using our online platform, employees can plan for their long- and short-term financial goals ranging from retirement to an emergency fund to a new house. Betterment’s unique technological solution: Takes into account employees’ ages, savings, and goals to create a personalized plan to help them save for the future they want. Enables employees to link their outside assets, making it easy for them to see a fuller picture of their personal finances. Can boost employees’ after-tax returns using tax-smart tools available at no additional management fee. Beyond saving for retirement, Betterment helps employees gain control of their finances so they can reduce their stress and focus on what matters most to them.

Employers Step Up and Stand Out with Student Loan Help Here's why more companies are taking an active role. Your staff could very well be loaded up with student loan debt. Heck, you might even have some yourself. None of this is news. But as student loan debt continues to snowball in the U.S.–up to $1.75 trillion as of July 2022– you may be less familiar with the all-hands-on-deck mentality many employers are now taking toward the problem. Companies are getting off the sideline and taking a more active role in helping their workers manage student loans. Here’s how and, more importantly, why. Why companies are adding student loan help to their benefits toolbox The story of how companies came to help with student loans is really the story of the 401(k), or more specifically, why so many employees weren’t touching theirs. A mystery at first, the answer has grown increasingly clear: it’s tough to save for the future when you’re still paying off the past. For employees with student loans, every dollar in their paychecks can represent a zero-sum decision. Do they service their student loans or contribute to their 401(k)? In recent years, however, both employers and employees have signaled a growing expectation to work together on the issue. More than half (57%) of employees believe their company should help them pay off student loans according to exclusive Betterment research on employee financial wellness. Some companies have taken the issue to heart. By complementing their 401(k) with student loan management, they can offer a more holistic compensation package, one that accounts for the drag student loan debt now has on the workforce as a whole. The benefits are numerous: Recruiting and retention advantages When it comes to benefits packages, 401(k)s have become the standard. Translation: beyond a generous match, they don’t always differentiate your company from others. Offering something of unique value can not only attract top talent but keep it. Nearly 9 out of 10 (86%) of young workers say they'd stay at least five years with a company if it helped with student loans. Two-way tax benefits Just like with 401(k)s, offering your staff a student loan management tool is one thing, but the real magic lies in the match. Why is that? It unlocks tax perks for both parties. Thanks to legislation passed by Congress in 2020 (aka the CARES Act), companies who maintain a qualified Section 127 Program can make tax-free annual contributions of up to $5,250 toward their employees’ student loans. This translates into a benefit that lowers both your company’s payroll taxes and your employees’ income taxes. This tax-free treatment is approved through 2025. What to look for in a Student Loan Management tool First and foremost, you want a streamlined admin experience. For many benefits admins, adding another vendor on top of their 401(k) provider is a non-starter. With Betterment, you can get both benefits synced and served up at the same time. If you’re already familiar with Betterment’s 401(k) product, Student Loan Management now slots into the all-in-one dashboard. Last but certainly not least, you want a tool that also makes your employees’ lives easier. Similar to the admin experience, we give your participants a clearer financial picture of their student loans and 401(k) all in one place. We also go the extra mile by helping them balance the competing demands of debt and investing.  If you’re interested in bringing Student Loan management to your team, please get in touch. Student loan management services made available in partnership with Spinwheel Solutions, Inc.  

Pros and Cons of OregonSaves for Small Businesses Answers to frequently asked questions about the OregonSaves retirement program for small businesses. Launched in 2017, OregonSaves was the first state-based retirement savings program in the country and has since surpassed managing $100 million in assets. Employers with 5 or more employees are already required to offer a plan; for employers with 4 employees or fewer, the deadline is March 1, 2023. If you’re wondering whether OregonSaves is the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees OregonSaves? No. Oregon laws require businesses to offer retirement benefits, but you don’t have to elect OregonSaves. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is OregonSaves? OregonSaves is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, you must automatically enroll your employees into the program. Specifically, the Oregon plan requires employers to automatically enroll employees at a 5% deferral rate with automatic, annual 1% increases until their savings rate reaches 10%. All contributions are invested into a Roth IRA. As an eligible employer, you must facilitate the program, set up the payroll deduction process, and send the contributions to OregonSaves. The first $1,000 of an employee’s contributions will be invested in the OregonSaves Capital Preservation Fund, and savings over $1,000 will be invested in an OregonSaves Target Retirement Fund based on age. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. (They can also opt out of the annual increases.) 3. Why should I consider OregonSaves? OregonSaves is a simple, straightforward way to help your employees save for retirement. Brought to you by Oregon State Treasury, the program is overseen by the Oregon Retirement Savings Board and administered by a program service provider. As an employer, your role is limited and there are no fees to provide OregonSaves to your employees. 4. Are there any downsides to OregonSaves? Yes, there are factors that may may make OregonSaves less appealing than other retirement plans. Here are some important considerations: OregonSaves is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in OregonSaves. For example, single filers with modified adjusted 2022 gross incomes of more than $144,000 would not be eligible to contribute. However, 401(k) plans aren’t subject to the same income restrictions. OregonSaves is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—OregonSaves only allows after-tax (Roth) contributions. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to OregonSaves, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, OregonSaves does not. Limited investment options—OregonSaves offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer OregonSaves; however, employees do pay approximately $1 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have far lower employee fees. Fees are a big consideration because they can seriously erode employee savings over time. 5. Why should I consider a 401(k) plan instead of OregonSaves? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you can benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. It’s important to note that the proposed SECURE Act 2.0 may offer even more tax credits. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision.  Saving power—Thanks to the higher contribution limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with OregonSaves, that means more employee savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that OregonSaves is most appropriate for your company, visit the website to register. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the  industry. That can mean more value for your company—and more savings for your employees. Get started now. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only. 

Pros and Cons of the New York State Secure Choice Savings Program Answers to small businesses' frequently asked questions The New York State Secure Choice Savings Program was established to help private-sector workers in the state who have no access to a workplace retirement savings plan. Originally enacted as a voluntary program in 2018, Gov. Kathy Hochul signed a law on Oct. 22, 2021, that requires all employees of qualified businesses be automatically enrolled in the state's Secure Choice Savings Program. If you’re an employer in New York, state laws require you to offer the Secure Choice Savings Program if you: Had 10 or more employees during the entire prior calendar year Have been in business for at least two years Have not offered a qualified retirement plan during prior two years If you’re wondering whether the Secure Choice Savings Program is the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees the Secure Choice Savings Program? No. State laws require businesses with 10 or more employees to offer retirement benefits, but you don’t have to elect the Secure Choice Savings Program if you provide a 401(k) plan (or another type of employer-sponsored retirement program). 2. What is the Secure Choice Savings Program? The Secure Choice Savings Program is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, if you don’t offer a retirement plan, you must automatically enroll your employees into a state IRA savings program. Specifically, the New York plan requires employers to automatically enroll employees at a 3% deferral rate. As an eligible employer, you must set up the payroll deduction process and remit participating employee contributions to the Secure Choice Savings Program provider. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider the Secure Choice Savings Program? The Secure Choice Savings Program is a simple, straightforward way to help your employees save for retirement. According to SHRM, it is managed by the program’s board, which is responsible for selecting the investment options. The state pays the administrative costs associated with the program until it has enough assets to cover those costs itself. When that happens, any costs will be paid out of the money in the program’s fund. 4. Are there any downsides to the Secure Choice Savings Program? Yes, there are factors that may make the Secure Choice Savings Program less appealing than other retirement plans. Here are some important considerations: The Secure Choice Savings Program is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate. For example, single filers with modified adjusted gross incomes of more than $144,000, as of 2022, would not be eligible to contribute. If they mistakenly contribute to the Secure Choice Savings Program—and then find out they’re ineligible—they must correct their error or potentially face taxes and penalties. However, 401(k) plans aren’t subject to the same income restrictions. New York Secure Choice is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—Illinois only offers after-tax contributions to a Roth IRA. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—Employees may save up to $6,000 in an IRA in 2022 ($7,000 if they’re age 50 or older), while in a 401(k) plan employees may save up to $20,500 in 2022 ($27,000 if they’re age 50 or older). So even if employees max out their contribution to the Secure Choice Savings Program, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, the Secure Choice Savings Program does not. Limited investment options—Secure Choice Savings Program offers a relatively limited selection of investments. 5. Why should I consider a 401(k) plan instead of the Secure Choice Savings Program? For many employers—even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over the course of three years. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contributions limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with New York Secure Choice that means more employer savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that New York’s Secure Choice Savings Program is most appropriate for your company, visit the New York Secure Choice website to learn more.  If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the industry. That can mean more value for your company—and more savings for your employees. Get started now.

Pros and Cons of CalSavers for Small Businesses Answers to frequently asked questions about the CalSavers Retirement Savings Program If you’re an employer in California with 5 or more employees, you must offer the CalSavers Retirement Savings Program—or another retirement plan such as a 401(k). Faced with this decision, you may be asking yourself: Which is the best plan for my employees? To help you make an informed decision, we’ve provided answers to frequently asked questions about CalSavers: 1. Do I have to offer my employees CalSavers? No. California laws require businesses with 5 or more employees to offer retirement benefits, but you don’t have to elect CalSavers. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is CalSavers? CalSavers is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, if you don’t offer a retirement plan, you must automatically enroll your employees into a state IRA savings program. Specifically, the CalSavers plan requires employers with at least five employees to automatically enroll employees at a 5% deferral rate with automatic annual increases of 1%, up to a maximum contribution rate of 8%. As an eligible employer, you must withhold the appropriate percentage of employees’ wages and deposit it into the CalSavers Roth IRA on their behalf. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider CalSavers? CalSavers is a simple, straightforward way to help your employees save for retirement. CalSavers is administered by a private-sector financial services firm and overseen by a public board chaired by the State Treasurer. As an employer, your role is limited to uploading employee information to CalSavers and submitting employee contributions via payroll deduction. Plus, there are no fees for employers to offer CalSavers, and employers are not fiduciaries of the program. 4. Are there any downsides to CalSavers? Yes, there are factors that may make CalSavers less appealing than other retirement plans. Here are some important considerations: CalSavers is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in CalSavers. For example, single filers with modified adjusted gross incomes of more than $140,000 would not be eligible to contribute. If they mistakenly contribute to CalSavers—and then find out they’re ineligible—they must correct their error or potentially face taxes and penalties. However, 401(k) plans aren’t subject to the same income restrictions. CalSavers is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—CalSavers only offers after-tax contributions to a Roth IRA. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to CalSavers, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, CalSaver does not. Limited investment options—CalSavers offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer CalSavers; however, employees do pay $0.83-$0.95 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have lower employee fees. Fees are a big consideration because they can erode employee savings over time. 5. Why should I consider a 401(k) plan instead of CalSavers? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also likely have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contributions limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with CalSavers, that means more employer savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that CalSavers is most appropriate for your company, visit the CalSavers website to register. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the industry. That can mean more value for your company—and more savings for your employees. Get started now. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only.

Guide to Meeting Your 401(k) Fiduciary Responsibilities To help your business avoid any pitfalls, this guide outlines how you can fulfill your 401(k) fiduciary responsibilities and manage them properly. If your company has or is considering, a 401(k) plan, you’ve probably heard the term “fiduciary.” But what does it mean to you as a 401(k) plan sponsor? Simply put, being a fiduciary means that you’re obligated to act in the best interests of your 401(k) plan participants. It’s serious business. If fiduciary responsibilities aren’t managed properly, your business could face serious legal and financial ramifications. To help you avoid any pitfalls, this guide outlines how you can fulfill your 401(k) fiduciary responsibilities. A brief history of the 401(k) plan and fiduciary duties When Congress passed the Revenue Act of 1978, it included the little-known provision that eventually (and somewhat accidentally) led to the 401(k) plan. The Employee Retirement Income Security Act of 1974, referred to as ERISA, is a companion federal law that contains rules designed to protect employee savings by requiring individuals and entities that manage a retirement plan, referred to as “fiduciaries,” to follow strict standards of conduct. Among other responsibilities, fiduciaries must always act in the best interests of employees who save in the plan and avoid conflicts of interest. When you adopt a 401(k) plan for your employees, you become an ERISA fiduciary. And in exchange for helping employees build retirement savings, you and your employees receive special tax benefits, as outlined in the Internal Revenue Code. The IRS oversees the tax rules, and the Department of Labor (DOL) provides guidance on ERISA fiduciary requirements and enforcement. As you can imagine, following these rules can sometimes feel like navigating a maze. But the good news is that an experienced 401(k) provider like Betterment can help you understand your fiduciary duties and even shoulder some of the responsibility for you. Key fiduciary responsibilities Even if you’re a business owner with a small 401(k) plan, you still have fiduciary duties. By sponsoring a retirement plan, you take on two sets of fiduciary responsibilities:   You are considered the “named fiduciary” with overall responsibility for the plan, including selecting and monitoring plan investments.   You are also considered the “plan administrator” with fiduciary authority and discretion over how the plan is operated. 401(k) fiduciary responsibility checklist As a fiduciary, you must follow the high standards of conduct required by ERISA both when managing your plan’s investments and when making decisions about plan operations. As a 401(k) fiduciary, you must follow five cornerstone rules: Act in employees’ best interests—Every decision you make about your plan must be solely based on what is best for your participants and their beneficiaries. Act prudently—Prudence requires that you be knowledgeable about retirement plan investments and administration. If you do not have the expertise to handle all of these responsibilities, you will need to engage the services of those who do, such as investment managers or recordkeepers. Diversify plan investments—You must diversify investments to help reduce the risk of large losses to plan assets. Follow the plan documents—You must follow the terms of the plan document when operating your plan (unless they are inconsistent with ERISA). Pay only reasonable plan fees—Fees from plan assets must be reasonable and for services that are necessary for your plan. Detailed DOL rules outline the steps you must take to fulfill this fiduciary responsibility, including collecting fee disclosures for investments and service providers, and comparing (or benchmarking) fees to ensure they are reasonable. You don’t have to pay a lot to get a quality 401(k) plan Betterment’s 401(k) administration fees are one of the lowest in the industry, and we always tell you what they are so there are no surprises for you—and more money working harder for your employees. Plus, since we serve as both a 3(16) administrative fiduciary and 3(38) investment fiduciary, we can help limit your risk exposure so you can focus on running your business--not managing your plan. Why it’s important to fulfill your fiduciary duties Put simply, it’s incredibly important that you meet your 401(k) fiduciary responsibilities. Not only are your actions critical to your employees’ futures, but there are also serious consequences if you fail to fulfill your fiduciary duties. In fact, plan participants and other plan fiduciaries have the right to sue to correct any financial wrongdoing. If the plan is mismanaged, you face a two-fold risk: Civil and criminal action (including expensive penalties) from the government and the potentially high price of rectifying the issue. Under ERISA, fiduciaries are personally liable for plan losses caused by a breach of fiduciary responsibilities and may be required to: Restore plan losses (including interest) Pay expenses relating to correction of inappropriate actions. While your fiduciary responsibilities can seem daunting, the good news is that ERISA also allows you to delegate many of your fiduciary responsibilities to 401(k) professionals like Betterment. How to be the best 401(k) fiduciary you can be Now that you understand what a 401(k) fiduciary is, you may be wondering how to best fulfill your fiduciary responsibilities. Here are some tips: Pay reasonable fees—As you know, fees can really chip away at your participants’ account balances—and have a detrimental impact on their futures. So take care to ensure that the services you’re paying for are necessary for the plan and that the fees paid from plan assets are reasonable. To determine what’s reasonable you may need to benchmark the fees against those of other similar retirement plans. Your 401(k) provider should be able to assist you with the benchmarking process. Deposit participant contributions in a timely manner —This may seem simple, but it’s extremely important to do it quickly and accurately. Specifically, you must deposit participants’ contributions to your plan’s trust account on the earliest date they can be reasonably segregated from general corporate assets. The timelines differ depending on your plan size: Small plan—If your plan has fewer than 100 participants, a deposit is considered timely if it’s made within seven business days from the date the contributions are withheld from employees’ wages. Large plan— If your plan has 100 participants or more, you must deposit contributions as soon as possible after you withhold the money from employees’ wages. It must be “timely,” which means typically within a few days.For all businesses, the deposit should never occur later than the 15th business day of the month after the contributions were withheld from employee wages. However, contributions should be deposited well before then. Fulfill your reporting and disclosure requirements—Under ERISA, you are required to fulfill specific reporting requirements. While the paperwork can be complicated, an experienced 401(k) provider like Betterment should be able to guide you through the process.It’s important to note that if required government reports—such as Form 5500—aren’t filed in a timely manner, you may be assessed financial penalties. Plus, when required disclosures—such as safe harbor notices—aren’t provided to participants in a timely manner, the consequences can also be severe including civil penalties, plan disqualification by the IRS, or participant lawsuits. Follow the plan document—It’s important to know your plan document. In fact, the IRS mandates that 401(k) plans operate in accordance with the terms of its written document to maintain its tax-favored status and prevent a breach of fiduciary duty.Make a mistake? The IRS considers the issue an “operational defect,” and your 401(k) plan can be disqualified for not fixing the problem in a timely manner. However, the IRS offers a handy 401(k) Plan Fix-It Guide to help you resolve any issues that crop up. Select prudent investments—Unfortunately, there can be many hidden fees buried in plan investments, so it’s critical to be vigilant about those you select. In addition to fee considerations, you must also think about whether they meet your plan’s investment objectives. Wondering which investments you should choose? Betterment can help.In fact, most companies hire one or more outside experts (such as an investment advisor, investment manager, or third party administrator) to help them manage their fiduciary responsibilities. Get help shouldering your fiduciary responsibilities When it comes to managing your fiduciary responsibilities, you don’t have to go it alone. However, the act of hiring 401(k) experts is a fiduciary decision! Even though you can appoint others to carry out most of your fiduciary responsibilities, you can never fully transfer or eliminate your role as an ERISA fiduciary. You will always retain the fiduciary responsibility for selecting and monitoring your plan’s investment professionals and administrators. How much support is right for you? For most employers, day-to-day business responsibilities leave little time for extensive investment research, analysis, and fee benchmarking. Many companies hire outside experts to take on the fiduciary investment duties or even plan administration responsibilities. Take a look at the chart below to see the different fiduciary roles—and the implications they have for you as the employer: Defined in ERISA section Outside expert Employer No Fiduciary Status Disclaims any fiduciary investment responsibility Retains sole fiduciary responsibility and liability 3(21) Shares fiduciary investment responsibility in the form of investment recommendations Retains responsibility for final investment discretion 3(38) Assumes full discretionary authority for assets and investments Relieves employer of investment fiduciary responsibility 3(16) Has discretionary responsibility for certain administrative aspects of the plan Relieves employer of certain plan administration responsibility Betterment can help When you appoint an ERISA 3(38) investment manager like Betterment, you fully delegate responsibility for selecting and monitoring plan investments to the investment manager. That means less work for you and your staff, so you can focus on your business. In addition to assuming fiduciary responsibility for your investment options, Betterment offers: Consultative plan sponsor support— As a total 401(k) solution, we are your full-service partner, including fiduciary services to plan design consulting and ongoing plan management support, helping ensure your 401(k) is set up for success. Personalized employee guidance—Our action-oriented approach to financial wellness enables your employees to make strides toward their long- and short-term goals ranging from paying down debt to saving for retirement. Plus, we link employees’ outside investments, savings accounts, IRAs—even spousal/partner assets—to help them see the big picture. Get in touch today if you’re interested in bringing a Betterment 401(k) to your employees.